Fall Edition 2016
In th
is
Issue
$
Break Your own Financial Even Crystal Ball
Department of Labor’s
Pg. 6
Final Rule on overtime pay
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on Member Benefits Missouri Restaurant Association and UnitedHealthcare Offering Exclusive Health Care Pricing and Solutions for MRA Members I’m pleased to share that the Missouri Restaurant Association and UnitedHealthcare are working together to offer industryspecific health care solutions to our members. UnitedHealthcare provides a suite of health benefit products that help MRA members gain easier access to cost-effective health care coverage and related products and services. The goal is to provide members with greater access to health care, help members comply with the Affordable Care Act (ACA) and provide the information necessary to help members make important coverage decisions for their employees. We chose UnitedHealthcare because of its wide range of innovative products and services to address the diverse health care needs of hospitality employers, employees and their families. Through the alliance, the MRA provides members with access to these special benefits and resources: Up to a 5 percent discount on medical rates for fully insured groups with 51 or more eligible employees. Annual invoice credit of up to 5 percent on administrative fees for new ASO medical products for self-funded groups with 100 or more eligible employees. Up to a 5 percent discount on specialty benefits products (dental, vision, life and disability) for fully insured groups – in addition to all other discounts including the Packaged Savings® program. Wellness programs and services aimed at helping people live healthier lives. Access to the National Restaurant Association Notification Tool, which helps employers meet the exchange notification law requirements from the ACA with notice templates from the U.S. Department of Labor and the ability to track employee health care law verification records. Latino Health Solutions resources and tools for Latino/Hispanic owners, operators and employees through UnitedHealthcare’s PlanBien® program. Lower-cost “preventive” medical plans that meet minimal essential coverage requirements for the Individual Mandate under the ACA for self-funded groups with 100 or more eligible employees.
UnitedHealthcare offers health care overage with access to its expansive network of providers and services; online tools; a range of wellness programs; online plan management and administration; and compliance assistance for employers and employees. In addition, voluntary benefit programs are available for dental, vision, life and disability insurance products. This program is designed for the hospitality industry, and we hope that you consider UnitedHealthcare to meet your health and wellness needs. For more information, visit www.uhctogether.com/mora. Sincerely,
Bob Bonney Chief Executive Officer Missouri Restaurant Association
Some restrictions apply; and discounts may vary by location and group size. Insurance coverage provided by or through UnitedHealthcare Insurance Company or its affiliates. Administrative services provided by United HealthCare Services, Inc. or their affiliates. Health Plan coverage provided by or through a UnitedHealthcare company. The Missouri Restaurant Magazine
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INSIDE THIS ISSUE 6
15
23 MRA Executive Officers Chairman, Bob Luke Rib Crib BBQ President, Buddy Lahl Kingswood Senior Living Community Vice-President, John LaRocca University Club of Missouri University
3 6 15 16
Spotlight on Member Benefits - UnitedHealthcare Department of Labor’s Final Rule on Overtime Pay for Salaried Employees U.S. House Votes to Delay Department of Labor Overtime Rule Department of Labor Overtime Rule Challenged in Federal Court
20
Group of U.S. House Democrats Wants Phase-In of Department of Labor Overtime Rule
23
Break-Even: It’s Like Having Your Own Financial Crystal Ball
29
MRA Riddle
ON THE COVER In our continuing efforts to help you excel in managing the financial side of your restaurant, we explain a simple process you can use to create a “financial crystal ball” to accurately predict your financial performance in real time – even before your monthly financials are prepared. When the U.S. Labor Department handed down its final rule on May 18, it marked a sea-change in the Fair Labor Standards Act which sets forth the minimum wage and overtime law in America. Beginning on page 6, we present important tips for complying with the DOL’s final rule on overtime pay for salaried employees which becomes effective December 1, 2016.
Secretary / Treasurer, Herman Styles Colton’s Steakhouse MRA Executive Team CEO, Bob Bonney Director of Operations, Barb Hergenroether Executive Director GKCRA, Bill Teel Southwest Regional Director, Shelli Luke Mid-Missouri Regional Director, David Maxwell
Missouri Restaurant Association 1810 Craig Road, Suite 225 St. Louis, MO 63146 Phone 314.576.2777 Fax 314.576.2999 morestaurants.org
Letters are welcomed, but must be signed to be considered for publication. Please include contact information for verification. Reproduction of articles appearing in Missouri Restaurant Magazine are authorized for personal use only, with credit given to Missouri Restaurant Magazine and/or the Missouri Restaurant Association. Articles written by outside authors do not necessarily reflect the views or positions of the Missouri Restaurant Association, its Board of Directors, staff or members. Products and services advertised in Missouri Restaurant Magazine are not necessarily endorsed by the MRA, and do not necessarily reflect the opinions of the MRA, its Board of Directors, staff or members. ADVERTISING INQUIRIES MAY BE DIRECTED TO: Missouri Restaurant Association Bob Bonney, CEO Mobile 636.432.9506 bbonney@morestaurants.org Barb Hergenroether, Director of Operations Office 314.576.2777 | Fax 314.576.2999 bhergenroether@morestaurants.org Missouri Restaurant Magazine is published quarterly for Association members. We welcome your comments and suggestions. Email: bbonney@ morestaurants.org
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OCTOBER 2016
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Department of labor’s
Final Rule on overtime pay for salaried employees Tips for compliance The Fair Labor Standards Act (FLSA or Act), which sets forth the minimum wage and overtime law in America, guarantees a minimum wage for all hours worked in a workweek and overtime premium pay of not less than one and one-half times the employee’s regular rate of pay for hours worked over 40 in a workweek. While these provisions of the Act apply to most workers, the FLSA does contain some exemptions. In a final rule handed down on May 18, 2016, the U.S. Department of Labor (Department or DOL) revised FLSA regulations defining the exemption from overtime pay for executive, administrative, and professional employees. These exceptions are commonly known as the “EAP” or “white collar” exemptions. To be exempt from overtime pay, employees must meet certain minimum requirements related to their primary job duties and must be paid on a salary basis at not less than the minimum amounts specified in the regulations. The final rule increased the minimum salary threshold for the EAP exemption to $47,476 annually, up from the present standard of $23,660 in place since 2004.
By Bob Bonney, CEO Missouri Restaurant Association - Certified Public Accountant 6
morestaurants.org | OCTOBER 2016
A bit of history The FLSA became law on June 25, 1938. The Act delegates to the Secretary of Labor the authority to define the terms of the overtime exemption. In October 1938, the Department issued the first version of the regulations setting forth criteria for determining which employees were not entitled to time-and-a-half overtime pay when exceeding 40 hours in a workweek. A minimum salary threshold has been part of the rules since the beginning. The DOL has updated the salary level requirements seven times since 1938 – see “History and background of the salary level test” on page 12. On March 13, 2014, President Obama signed a Presidential Memorandum directing Labor Secretary Thomas Perez to update the regulations defining which salaried workers are covered by the FLSA’s overtime standards. Increasing the minimum salary threshold was the primary goal from the beginning. DOL issued a Notice of Proposed Rulemaking (NPRM) to update the regulations on July 6, 2015, after several missed release dates, and requested comments from interested parties during a 60-day public comment period. On behalf of the restaurant industry, Missouri Restaurant Association and the National Restaurant Association weighed in. Most expected release of the final rule in late summer of 2016. In April of this year, MRA advised its members to expect the directive to be handed down much earlier than previously expected, possibly as early as May 16, 2016. We didn’t miss the release date by much. The Department’s final rule “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees” was issued on May 18 and became law when published in the Federal Register on May 23. The effective date is December 1, 2016. The law can be condensed into four bullet points.
The DOL Final Rule on Overtime: • Guarantees time-and-a-half overtime pay to any salaried employee earning under $47,476 a year ($913 a week) and who works more than 40 hours in a workweek. • Automatically updates the salary threshold every three years, tying it to the 40th percentile of full-time salaried workers in the lowest-income Census region (currently the South). The first update would be January 1, 2020. Furthermore, the DOL projects a salary threshold of $51,000 by January 1, 2020. • Makes no changes in the duties tests used to determine whether a salaried employee above the threshold is considered exempt from overtime pay. • For the first time, allows certain bonuses and incentive payments to count toward up to 10% of the new salary level if the payments are made on at least a quarterly basis. While the bullet points are accurate and succinct, they also serve to oversimplify the requirements of the FLSA. Compliance with the “Fair Labor Standards Act of 1938, As Amended,” the Act’s formal name, is far from simple. Accordingly, MRA presents tips for complying with the changes contained in the Department’s recent final rule, as well as the FLSA as it existed before those changes. The Missouri Restaurant Magazine
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TIP #1 Become familiar with the terms “nonexempt” and “exempt” as the DOL uses them. In an attempt to address concerns that the terms exempt and nonexempt “were not sufficiently descriptive or intuitive,” the DOL introduced the terms “overtime-protected” and “overtime-eligible” as synonyms for nonexempt. Employees who are nonexempt, overtime-protected, or overtime-eligible must receive time-and-a-half overtime pay when working more than 40 hours in a workweek. Similarly, the Department introduced “not overtimeprotected” and “overtime-ineligible” as terms synonymous with exempt. Employers are not required to pay the overtime premium to workers who are exempt, not overtime-protected, or overtime-ineligible even when the worker’s time exceeds 40 hours in a workweek.
TIP #2 Remember the other two of the three basic tests to claim the EAP exemption. For an employer to claim a white collar exemption for an employee, three basic tests must be satisfied: the salary level test, the salary basis test, and the duties test. The salary level test has undoubtedly controlled the conversation surrounding the final rule. However, payment of the specified minimum salary amount, $913 per week effective December 1, is not alone sufficient to qualify an employee for the white collar exemption. The Department’s outreach during the recent public comment period made clear that many employers and employees mistakenly believe that compliance with the salary level test automatically disqualifies an employee from overtime compensation. 8
morestaurants.org | OCTOBER 2016
Such misconceptions are not new. In a 1949 report, the Department noted “the failure of some employers to realize that salary is not the sole test of exemption.” Companies should be aware there is no special salary level for white collar employees working less than full-time. Employers, however, can pay EAP employees working parttime a salary of less than the minimum salary threshold and comply with the FLSA so long as the salary equals at least the minimum wage for all hours worked and the employee does not exceed forty hours in a workweek. Generally, for a company to claim an overtime exemption for an employee, that employee must be paid on a salary basis. The salary basis test requires an employee to regularly receive a predetermined amount of remuneration, i.e. the salary, for each workweek. The salary cannot be reduced because of variations in the quality or quantity of the employee’s work. Further, an exempt employee must generally receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked.
Salary deductions are permissible when an exempt employee is absent from work for one or more full days for personal reasons other than sickness or disability, or when an exempt employee is absent for one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing paid sick leave. If the employee is ready, willing, and able to work, deductions may not be made for time when work is not available. Exempt employees must also satisfy the duties test to qualify for any of the EAP exemptions. Separate duties requirements exist for executive, administrative, and professional employees. The standard duties test, in place since 2004, focuses on an employee’s primary responsibility. “Primary duty” means the principal, main, major, or most important duty that the employee performs. The Department estimates that 732,000 white collar salaried employees currently making between $455 and $913 per week do not meet the duties test and should be classified as overtimeeligible, but their employers inappropriately fail to recognize them as such. To qualify for the executive exemption under the standard test, all of the following job duties must be satisfied: • The employee’s primary duty must be managing the enterprise in which the employee is employed, or managing a customarily recognized department or subdivision of the company;
• The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and • The employee must have authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight. To qualify for the administrative exemption under the standard test, all of the following job duties must be satisfied: • The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and • The employee’s primary duty must include the exercise of discretion and independent judgement with respect to matters of significance. To qualify for the professional exemption under the standard test, all of the following job duties must be satisfied: • The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and requires the consistent exercise of discretion and judgement; • The advanced knowledge must be in a field of science or learning that has a recognized professional status; and • The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction, which means specialized academic training is a standard prerequisite for entry into the profession.
TIP #4 Understand the exception for non-discretionary bonuses and be careful. An exception to the $913 per week requirement allows employers to count non-discretionary bonuses, including incentive payments such as commissions, toward up to 10% of the threshold and lower the weekly pay obligation to $821.70. Be careful. Bonuses must be paid at least quarterly, and must increase the employee’s average pay for that quarter, defined as a period of 13 consecutive weeks, to at least $913 per week. If the employer makes a miscalculation resulting in an employee receiving less than an average weekly salary of $913, the employee must be classified as overtime-eligible for that entire quarter and receive time-and-a-half overtime pay for hours worked in excess of 40 in any workweek during the quarter. If an employee does not earn enough in nondiscretionary bonuses to raise their average weekly pay during the quarter to a minimum of $913, the Department permits a “catch-up” payment after the end of the quarter. The employer has one pay period in the subsequent quarter to make up for the shortfall (but only up to 10% of the standard salary level for the preceding 13-week period). Any such catch-up payment will count only toward the prior quarter’s salary amount and not toward the minimum salary for the quarter in which it is paid. If the employer chooses not to make the catch-up payment, the employee is entitled to overtime pay for any hours worked in excess of 40 in any workweek during the quarter. Some businesses pay significantly larger
TIP #3 Focus on weekly pay, not the annual salary. The minimum salary threshold is a weekly requirement and employers should be certain that employees for whom they intend to claim a white collar exemption are paid at least $913 per week. If there are weeks where employees do not earn at least this amount, they must receive overtime pay for time worked in excess of 40 hours for those weeks. See, however, tip #4 below concerning an exception for non-discretionary bonuses. The Missouri Restaurant Magazine
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History and background of the salary level test Minimum salary amounts to qualify for the overtime exemption The federal minimum wage and overtime law, known as the Fair Labor Standards Act, was enacted on June 25, 1938, and in October of that year, the first version of the regulations setting forth criteria defining which employees were not covered by the Act’s overtime provisions was issued. The salary level test, a part of the 1938 law, has been long recognized as “the best single test” for exempt status. In a report released in 1940, the U.S. Department of Labor noted that the salary an employer pays an employee provides “a valuable and easily applied index to the bona fide character of the employment for which exemption is claimed.” The table below indicates historical changes in the minimum salary threshold for purposes of satisfying the salary level test. The “long duties test” set a limit on the amount of nonexempt work an exempt employee could perform. In 1940, a brightline 20% cap on nonexempt duties was instituted on executive and professional employees, and in 1949 for administrative employees. By statute, beginning in 1961, retail employees could devote up to 40% of their hours worked in nonexempt tasks. Also in 1949, the DOL established a second, less stringent duties test for each exemption, but only for employees paid at least a higher “short test” salary level. The short test did not contain a limit on nonexempt work, but instead focused on employees “primary duties.” The rationale for the less rigorous short test was that employees paid the higher salary were more likely to meet “all the requirements with respect to nonexempt work.” Prior to the May 18, 2016 publication of the Labor Department’s much anticipated final rule, the salary level test was most recently updated in 2004, when the DOL abandoned the concept of separate long and short tests in favor of one “standard test” and set the minimum weekly salary amount at $455 for executive, administrative, and professional employees. The Department based the 2004 standard duties test on the former short test which did not limit the amount of nonexempt work that could be performed.
History of minimum weekly salary amounts for OT exemption
EFFECTIVE Long Test DATE Executive
Short Test administrative professional all
1938
$30
$30
--- ---
1940
30
50
$50
---
1949
55
75
75
$100
1958
80
95
95
125
1963
100
100
115
150
1970
125
125
140
200
1975
155
155
170
250
Standard Test 2004 $455 Dec. 1, 2016
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$913
bonuses; however, the amount attributable toward the minimum salary threshold for the EAP exemption is capped at 10% of the required salary amount. To satisfy the salary level test, employees must be paid at least $821.70 each week. The amount of the non-discretionary bonus, no matter how large, does not change the minimum weekly amount. Non-discretionary bonuses are forms of compensation promised to employees to induce them to work more efficiently or to remain with the company. Examples include bonuses for meeting set production goals, retention bonuses, and commission payments based on a fixed formula. Non-discretionary bonuses are generally based on preannounced criteria that have been communicated to the employee in advance and which the employee understands. By contrast, discretionary bonuses are those for which the decision to award the bonus, and the bonus amount, is at the employer’s sole discretion and not in accordance with any preannounced standards. Only non-discretionary bonuses count toward meeting the minimum salary threshold, and even then only up to 10% of the requirement. Finally, employers should devise a policy to compensate properly employees who leave before the end of a quarter. Make sure the final bonus raises total pay to at least $913 per week worked.
TIP #5 Consider the DOL-recommended cost-neutral formula.
TIP #6 Plan on the December 1 effective date remaining in place and communicate payroll changes to employees at the earliest possible moment. Changes of this nature are often stressful, for employers as well as employees, and additional time to adjust will likely be appreciated. Some employees may move from salaried status to an hourly position. Depending on hours worked, this change could result in an employee earning less than before. Employers should be aware that Missouri law requires a notice of not less than 30 days for pay decreases. There has been considerable conversation about bills introduced in Congress to repeal, delay, or modify the provisions of the final rule. However, such legislation, if passed, would certainly be vetoed by the President. On September 20, two separate lawsuits were filed in Texas federal court against the Labor Department to challenge the provisions of the final rule. One suit was brought by attorneys general of 21 states, though not Missouri. The second lawsuit, was filed by a coalition of 50 business groups led by the U.S. Chamber of Commerce. MRA will keep you apprised of the progress of the legislation and the lawsuits. We encourage our members to not let these events divert their attention away from preparation for the final rule’s December 1 effective date.
The Department provided a cost-neutral approach employers can use to keep annual earnings the same for employees currently receiving a salary below $913 per week. Assuming you have an accurate estimate of the hours they work, you can account for the overtime pay in their hourly wage. Here’s the DOL-recommended formula: Weekly Salary [40 hours + (Overtime Hours Worked Per Week x 1.5)] Here’s how the formula would work for an employee who regularly works 48 hours per week and earns a weekly salary of $825. $825 [40 hours + (8 Overtime Hours x 1.5)]
=
$15.87 per hour
The employee’s overtime rate is $23.81 ($15.87 x 1.5). Therefore, in a 48 hour workweek, the employee would earn $825.28 under the DOL’s cost-neutral formula (40 hours @ $15.87 plus 8 hours @ $23.81). The Missouri Restaurant Magazine
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The impact of the DOL overtime rules by state and demographic group The U.S. Department of Labor announced its final rule directing which salaried employees must receive overtime pay would extend overtime eligibility to 4,227,566 million workers across the nation unless their employer elects to increase their weekly earnings to the new minimum salary threshold of $913 a week. The following table breaks down the affected workers by selected states and demographic group. The selected states include Missouri and the remaining states in the Midwest Census Bureau Region, plus those states in the Southern Region sharing a border with Missouri – Kentucky, Tennessee, Arkansas, and Oklahoma.
By Gender Male
1,875,516
44.3%
Female
2,352,050
55.6%
By age Under 25
313,605
7.4%
25 - 34
1,325,683
31.3%
35 - 44
948,612
22.4%
45 - 54
896,939
21.2%
55 - 64
606,299
14.3%
65 and over
136,428
3.2%
By Educational Attainment Less than high school
69,413
1.6%
695,515
16.4%
Some college/associate’s degree
1,210,743
28.6%
Bachelor’s degree
1,659,284
39.2%
592,611
14.0%
High school diploma
Advanced degree
By Selected states Arkansas
52,055 1.2%
Illinois
193,930 4.6%
Indiana
86,985 2.1%
Iowa
43,615 1.0%
Kansas
39,619 0.9%
Kentucky
55,073 1.3%
Michigan
101,463 2.4%
Minnesota
78,964 1.9%
Missouri
84,878 2.0%
Nebraska
28,034 0.7%
North Dakota
0.3%
133,756 3.2%
Oklahoma
47,771 1.1%
South Dakota Tennessee Wisconsin
12
11,819
Ohio
morestaurants.org | OCTOBER 2016
9,232
0.2%
99,865 2.4% 68,838 1.6% 1,135,897 26.9%
TIP #7 Look at the calendar – December 1, 2016, is a Thursday. Considering the day on which your workweek ends, when does it make sense for your business to make the change? Are you prepared to properly calculate pay for employees exempt from overtime for part of that week and overtime-eligible for the remainder? It may make sense to make the change the previous week – the workweek that includes Thanksgiving Day. Many restaurants close for the holiday, making it less likely that newly overtime-eligible employees will work overtime that week.
TIP #8 Do not confuse overtime pay with compensatory (comp) time. The FLSA mandates that overtime-eligible employees must receive overtime pay for hours worked over 40 in a workweek at a rate not less than one and one-half times their regular rate of pay. The use of comp time in place of overtime pay is limited by the Act to a public agency that is a state, a political subdivision of a state, or an interstate governmental agency. Private employers cannot satisfy their overtime obligations by providing comp time.
It’s Time To get advice - Contact Your legal Counsel today! In conclusion, please be aware the DOL’s final rule on overtime is 508 pages in length; therefore it is impossible for this article to include the entirety of its content. MRA encourages readers to consult competent legal counsel regarding compliance with the FLSA as amended by the recent DOL final rule.
The Missouri Restaurant Magazine
13
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U.S. House Votes to Delay Department of Labor Overtime Rule By Bob Bonney, CEO - Missouri Restaurant Association - Certified Public Accountant
The U.S. House of Representatives passed a bill that will delay the effective date of the Department of Labor’s overtime rule by six months. The House voted 246 – 177 to move, from December 1, 2016, to June 1 of the following year, the implementation date of a DOL final rule that will more than double (from $23,660 to $47,476) the salary threshold under which most workers must receive timeand-a-half overtime pay when exceeding 40 hours in a workweek. The House passed the Regulatory Relief for Small Businesses, Schools, and Nonprofits Act (H.R. 6094) on September 28. Republicans voted unanimously for the bill, along with five Democrats: Representatives Brad Ashford – Nebraska, Henry Cuellar – Texas, Daniel Lipinski – Illinois, Collin Peterson – Illinois, and Krysten Sinema – Arizona. The measure is sponsored by Congressman Tim Walberg (R – Michigan) and has 69 cosponsors. The representative, 65, is a former pastor who put himself through college by working for the U.S. Forestry Service and in a steel mill.
The bill must get through the U.S. Senate before reaching President Obama’s desk. Companion legislation was introduced on September 28 in the Senate by Senator James Lankford (R – Oklahoma). The Senate is comprised of 54 Republicans, 44 Democrats, and two independent senators who caucus with the Democrats. In a Statement of Administration Policy, the White House indicated its opposition to the legislation, “If the President were presented with H.R. 6094, he would veto the bill.”
National Restaurant Association released the following statement in response to the House’s passage of the legislation, “We are grateful that Congress stood with small business and passed [H.R. 6094]. We thank Congressman Walberg for his leadership in getting this bipartisan legislation introduced and passed quickly through the House. With a December 1 implementation deadline looming, we have been working closely with members of the House on finding long-term solutions. This legislation is a much needed short- term fix for small businesses as they begin to navigate the Department of Labor’s onerous overtime rule. We continue to work with key senators on both sides of the aisle to find a resolution. We hope the Administration will listen to Congress, stand with small businesses and give Main Street [a measure of] relief.” Representative Bradley Byrne (R – Alabama) stated Congress deserves better information from the Labor Department. “I’ve heard from everybody about the rule – from small businesses to universities, nonprofits and elementary and secondary schools,” and what they are telling him, he said, is “wholly at odds with the made-up facts from the DOL.” The Congressman called for a “six-month pause” while Congress gets better facts from the Labor Department.
“If the President were presented with H.R. 6094, he would veto the bill.” In a Statement of Administration Policy, the White House indicated its opposition to the legislation proposed to delay the effective date of the Department of Labor’s Overtime Rule. The Missouri Restaurant Magazine
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Department of Labor Overtime Rule Challenged in Federal Court By Bob Bonney, CEO - Missouri Restaurant Association - Certified Public Accountant
Two Separate Lawsuits Filed September 20, 2016: States’ Lawsuit Chamber’s Lawsuit
Coalitions of states and business groups filed separate lawsuits within hours of each other on September 20 in the U.S. District Court for the Eastern District of Texas seeking to block the U.S. Labor Department’s overtime rule scheduled to take effect on December 1, 2016. One suit was brought by attorneys general in 21 states, though not Missouri, and the other by more than 50 business groups led by the U.S. Chamber of Commerce. The DOL overtime rule should be, both suits assert, declared invalid and set aside.
States’ Lawsuit: The States’ lawsuit argues that the rule “infringes upon state sovereignty by dictating the wages that states must pay to those whom they employ to carry out their governmental functions, what hours those persons will work, and what compensation will be provided where these employees may be called upon to work overtime.” States will be forced to cut back on public services, the lawsuit claims.
A Little Judicial History: Interestingly, in 1976 the Supreme Court held in National League of Cities v. Usery, that the Tenth Amendment limited Congress’s power to apply FLSA’s overtime provisions to the States. Using identical language as above, the High Court recognized that “one undoubted attribute of state sovereignty is the States’ power to determine the wages which shall be paid to those they employ to carry out their governmental functions, what hours those persons will work, and what compensation will be provided where these employees may be called upon to work overtime.” The Supreme Court went on to rule in Usery that the Federal Government does not have the authority to usurp the policy choices of the States as to how they structure the pay of State employees or how the States allocate their budgets. It cannot force States to cut services and programs to pay for the Federal Government’s policy choices related to wages. To permit the Federal Government to manage State employment relationships would be to trample upon the principles of federalism. “If Congress may withdraw from the States the authority to make those fundamental employment decisions 16
morestaurants.org | OCTOBER 2016
Coalitions of states and business groups filed separate lawsuits within hours of each other on September 20 in the U.S. District Court for the Eastern District of Texas seeking to block the U.S. Labor Department’s overtime rule scheduled to take effect on December 1, 2016. Department of Labor rule infringes upon state sovereignty, violates Administrative Procedures Act, lawsuits assert.
upon which their systems for performance of these functions must rest, we think there would be little left of the States’ separate and independent existence.” (emphasis added).
only departs from the terms of the Act, but it also does so without additional notice and comment required by the Administrative Procedures Act.”
Of course, in the case of the recent final rule, the changes to the Fair Labor Standards Act were not made by Congress, but by the Department of Labor – a cabinet-level department of the federal government – under the direction of the White House.
Commenting on the rule, Randy Johnson, a Senior VP at the Chamber, stated the threshold is so “indefensibly high” as to allow the salary level test to render another basic test of overtime exemption, the white collar exemption, practically meaningless.
Almost a decade later, however, the Supreme Court backed away from its decision in Usery, overruling it in Garcia v. San Antonio Metropolitan Transit Authority. “The political process,” the Court said in Garcia, “ensures that laws that unduly burden the States will not be promulgated.” But, as the States’ suit points out, DOL’s incorporation of automatic indexing into the final rule places future increases in the minimum salary threshold on auto pilot and ensures there will be no political process.
“The new Overtime Rule,” the Chamber’s suit states in its introduction, “drastically alters DOL’s minimum salary requirements for [the overtime] exemption – increasing the minimum by 100% – so as to impose new overtime payment requirements on businesses of all sizes and employers that employ millions of individuals who have historically been considered to be exempt from overtime. The [rule] defies the mandate of Congress to exempt [white collar] employees from the overtime requirements of the FLSA. As a result, the exemption is effectively lost for entire categories of employees whose job duties qualify them to be treated as exempt, in a manner that is inconsistent with and departs from more than 75 years of congressionally approved regulation by the Department.”
Chamber’s Lawsuit: The Chamber’s lawsuit also alleges that the Labor Department lacks the statutory authority to index the minimum salary threshold contained in the salary level test. Congress “has never,” the Plaintiffs write, “authorized indexing of the minimum salary thresholds related to overtime under the FLSA. This provision not
Finally, the lawsuit is critical of the DOL for failing to provide a phase-in period for the radical increase in the salary threshold, and for “arbitrarily excluding The Missouri Restaurant Magazine
17
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nondiscretionary bonuses paid less frequently than quarterly, and also arbitrarily excluding other types of compensation such as discretionary bonuses, profit-sharing, stock options, employer-funded retirement benefits, and deferred compensation.”
Eastern District of Texas is an Attractive Venue: Bloomberg BNA opined in an online article dated September 21 that a “likely factor motivating the filing in the Texas Eastern District” is the Court’s reputation as a “rocket docket” – a place where cases can move quickly. With the DOL rule’s December 1 effective date, an injunction would need to be handed down within ten weeks or so to beat the deadline.
Thank You! Missouri Restaurant Association for protecting and fighting for ALL of us for over 100 years!
Both lawsuits were assigned to Judge Amos Mazzant, a 2014 appointee of President Obama, and the only one of the three judges in the Court’s Sherman Division nominated by a Democratic president. In an e-mail message to Bloomberg, a Labor Department official during the George W. Bush administration speaking on condition of anonymity noted, “If both suits are in front of an Obama appointee, then it’s essentially game over, at least in the district court.” If Judge Mazzant denies injunctive relief, both cases are likely to be immediately appealed to the U.S. Court of Appeals for the Fifth Circuit – a court with a historical willingness to put the brakes on Obama administration programs.
DOL Confident Final Rule Will Withstand Challenge: “We are confident in the legality of all aspects of our final overtime rule. It is the result of a comprehensive, inclusive rule-making process,” said DOL Secretary Thomas Perez in a statement.
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Both lawsuits to be argued before Obama appointee.
The Missouri Restaurant Magazine
19
Group of U.S. House Democrats Wants Phase-In of Department of Labor Overtime Rule Automatic Increases of Salary Threshold Would Be Eliminated Companion Legislation Introduced in U.S. Senate By Bob Bonney, CEO - Missouri Restaurant Association - Certified Public Accountant
The recently-passed legislation in the U.S. House of Representatives delaying by six months the effective date of the U.S. Department of Labor’s overtime rule does not go far enough according to a group of House Democrats. The Overtime Reform and Enhancement Act (OREA) was introduced by Congressmen Kurt Schrader (D – Oregon), Jim Cooper (D – Tennessee), Henry Cuellar (D – Texas) and Collin Peterson (D – Minnesota). All four sponsors belong to the Blue Dog Coalition, an official caucus of 15 fiscally conservative Democrats.
The annual increases under the bill are:
The DOL’s final overtime rule doubles, effective December 1, 2016, the minimum salary threshold, from $23,660 to $47,476 per year, under which most salaried workers must receive overtime pay when exceeding 40 hours in a workweek. That’s too much, too soon, according to the four Blue Dogs.
OREA eliminates the every three-year automatic increase in the salary threshold contained in the DOL rule. Though recognizing that future administrations can and should update the overtime rules when appropriate, as is required under the Fair Labor Standards Act, OREA prevents the Department from doing so on autopilot.
Instead, after an initial increase in 2016, OREA initiates a more reasonable three-year phase-in until the DOL’s new salary threshold is met.
Companion legislation introduced in the Senate extends the phase-in period an additional year and creates a “pause year” in 2017 for a study of the effects of the
Fiscally conservative Democrats demand a measured approach.
28 20
morestaurants.org | JULY 2016 morestaurants.org | OCTOBER 2016
Effective Date annually weekly Dec. 1, 2016
$35,984
$692
Dec. 1, 2017
$39,780
$765
Dec. 1, 2018
$43,628
$839
Dec. 1, 2019
$47,476
$913
final rule by the Government Accountability Office (GAO) – an independent agency of the federal government that provides audit and investigative services for Congress. The Senate bill is known by a slightly different name, the Overtime Reform and Review Act (ORRA). The annual increases under ORRA are: Effective Date annually weekly Dec. 1, 2016
$35,984
$692
Dec. 1, 2018
$39,780
$765
Dec. 1, 2019
$43,628
$839
Dec. 1, 2020
$47,476
$913
Pause Year For Study
ORRA requires the DOL and the independent Small Business Administration Office of Advocacy to work together using GAO’s report to certify that the initial 2016 increase under the rule did not increase part-time employment, or negatively impact workplace flexibility, workplace benefits, career advancement opportunity, or job growth. Unless the government agencies certify that none of these negative consequences occurred, certain non-profit organizations – including colleges and universities, state and local governments, and health care providers receiving more than half of their revenue from Medicare or Medicaid payments – will automatically be exempt from the rule’s remaining increases. The GAO report must be submitted not later than March 1, 2018. ORRA also strikes down “any procedure that automatically updates the salary threshold.” The bill makes clear it is the “sense of the Senate” that the FLSA requires the Secretary of Labor to issue a new rule through “notice and comment rulemaking for each specific and enumerated change to the salary threshold.”
Senate: An initial increase followed by a study.
The Overtime Reform and Review Act is sponsored by Senators Lamar Alexander (R – Tennessee), Susan Collins (R – Maine), James Lankford (R – Oklahoma), Tim Scott (R – South Carolina), and Jeff Flake (R – Arizona).
The Missouri Restaurant Magazine
21
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Save the Date Join the Missouri Restaurant Association and its Mid-Missouri Chapter for the
Sunday, February 12, 2017 University Club of MU • Columbia, MO MRA President John LaRocca Mid-Missouri President Lydia Melton MID-MISSOURI Missouri Restaurant Association
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morestaurants.org | OCTOBER 2016
Invitation to Follow
Break-Even It's Like Having Your Own
Financial Crystal Ball
by Jim Laube One of my sharpest restaurant clients, always seemed to know, before I prepared his monthly financial, what his profit for the month would be for each of his three restaurants. He was so remarkably accurate, at times I thought he was keeping another set of books on the side.
It wasn’t uncommon for him to look at a P&L for just
a few seconds and say something like, “this is wrong, we can’t be making this much money” or “we should be making more money than this.” He was usually right. Sometimes an expense hadn’t been recorded to the proper period or after talking to his store managers, he determined that the numbers were indeed accurate but instead knew he had an operational glitch on his hands. His seemingly uncanny knack with numbers was really nothing extraordinary once he explained to me how he did it. He had simply (and accurately) calculated
the weekly and monthly sales break-even point for each of his three restaurants. He also knew how much of every dollar in sales above the break-even point should go straight to his bottom line at various sales levels above break-even. By knowing just the weekly or monthly sales volume from the three restaurants, he could, with a good deal of precision, come up with how much money he should have made or in some cases lost in each of his restaurants. If the actual profit or loss was much different than he expected, he knew something was out of line.
The Missouri Restaurant Magazine
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The Power of Break-Even If you’re not familiar with break-even, it’s simply calculating how much sales a restaurant must have to cover all of it’s costs for a certain period of time, say a week or month. Some of the advantages of knowing your break-even include: 1. It tells you the minimum sales volume your restaurant needs every week or month to have any real chance of making a profit. Knowing only your sales volume can give you a good sense of whether you’re making or losing money. Break-even acts like an early warning system.
2. Knowing your break-even enables you to respond promptly to sales declines that may put the restaurant in an unprofitable position. During a sales slump, break-even acts like an early warning system. It can tell you that once sales slide past a certain point, chance are you’re losing money and you have a real problem on your hands. It’s much better knowing that sooner rather than later. 3. Break-even also gives you a tool to quickly estimate your profit or loss for a period of time, with knowing just your sales.
The basic formula for computing break-even is:
Break-Even Sales
=
Total Fixed Costs 1 - Variable Cost %
Fixed & Variable Costs There are two basic types of costs in business. Those that stay the same regardless of sales volume, like rent (unless you’re subject to “percentage” rent) and property taxes, which are referred to as “fixed” costs. There are also costs that go up or down in direct proportion to sales volume, a good example being food and beverage costs, which are referred to as “variable” costs.
A Simple, Yet Accurate Way To Calculate Break-Even The following is a simple way to determine the break-even point of an existing restaurant. I’ve used this approach many times and have found it very helpful in quickly calculating a fairly accurate break-even. It’s good to start with several recent monthly or 4-week P&L statements with some wide ranges in sales volumes. If possible, I like to use P&Ls with the lowest and highest sales volume in the past twelve months and also a third one coming from a moderate, middle of the road, sales period. For example, assume we get the following P&Ls from a quick serve pizza operator. As you can see below, the three months represent the lowest and highest 4-week period’s sales in the last year as well as an “average” or typical sales period (See Exhibit 1). The next step would be to identify each expense category as being either fixed or variable. In this example, variable costs are highlighted in dark green and the fixed costs are highlighted in light green. You’re probably wondering why I’ve identified so many of the operating cost as “fixed costs” when in fact some can’t possibly be fixed at every sales level. One category that sticks out is Hourly Personnel costs. 26
morestaurants.org | OCTOBER 2016
Hourly Personnel Labor Costs While it’s true that Hourly Personnel costs aren’t fixed at every sales level, the approach I’m taking here is to short cut the process by making a few simplifying assumptions. Stay with me and I think you’ll see what I’m doing and why this quick and easy method will still get you a very accurate breakeven. So that we don’t have to do a detailed, time-consuming cost behavior analysis of every single expense category I assume that every cost that is not truly 100% variable in nature is fixed, at least to initially compute the break-even point. After we’ve estimated break-even, we can then make some assumptions regarding the effect sales volume has on some of the “fixed costs”. You’ll see in a minute how we account for those “fixed costs” that in actuality do fluctuate, to some degree, with sales volume such as Hourly Personnel payroll.
Exhibit 1
Actual P&Ls Within The Last 12 Months Lowest Sales Sales
$
37,251
%
Average Sales
100.0
$
45,861
%
Highest Sales
100.0
$
54,881
%
Break-Even Estimate
100.0
Cost of Sales
13,075
35.1
15,265
33.3
18,687
34.1
Gross Profit
24,176
64.9
30,596
66.7
36,194
65.9
4,200
11.3
4,200
9.2
4,200
7.7
7,324
19.7
8,157
17.8
8,954
16.3
7,500 2,574
34.4%
Payroll Management Hourly Personnel
$
4,200
Taxes & Benefits
2,535
6.8
2,719
5.9
2,894
5.3
Total Payroll
14,059
37.7
15,076
32.9
16,048
29.2
Direct Operating Exp.
1,351
3.6
1,158
2.5
1,423
2.6
1,200
Music & Entertainment
285
0.8
280
0.6
280
0.5
280
Controllable Expenses
Marketing
965
2.6
1,125
2.5
1,395
2.5
1,100
Utility Services
1,524
4.1
1,425
3.1
1,258
2.3
1,400
Admin. & General
1,158
3.1
1,254
2.7
1,058
1.9
1,100
Repairs & Maintainence
689
1.8
235
0.5
551
1.0
500
5,972
16.0
5,477
11.9
5,965
10.9
4,145
11.1
10,043
21.9
14,181
25.8
Total Controllable Exp. Controllable Profit Occupancy Costs Rent
2,350
6.3
2,350
5.1
2,350
4.3
2,350
Property Taxes
450
1.2
450
1.0
450
0.8
450
Other Taxes
226
0.6
521
1.1
385
0.7
400 1,125
Property Insurance
1,125
3.0
1,125
2.5
1,125
2.0
4,151
11.1
4,446
9.7
4,310
7.9
Interest
698
1.9
725
1.6
719
1.3
700
Depreciation
942
2.5
942
2.1
942
1.7
942
$ <1,646>
<4.4>
3,930
8.6
8,210
15.0
Total Occupancy Costs Other Expenses
Income Before Tax
$
$
Total Fixed Costs
$
25,821
The Missouri Restaurant Magazine
27
Looking at the far right column, labeled ‘Break-Even Estimate’ in Exhibit 1, you will notice what I’ve done is estimate the cost % for the variable costs and a cost in dollars for each fixed cost based on the historical P&Ls. Obviously, this isn’t an exact science and I used my judgment to get a reasonable number. For example, notice that I estimated Hourly Personnel payroll at break-even to be $7,500. How I got $7,500 was by noticing that in the lowest sales period (sales of $37,251) actual payroll was $7,324 and there was a small loss on the bottom line. I assume that break-even will require a slightly higher sales and therefore a slightly higher labor cost. Sure, I may be off a few hundred dollars but all we care about is getting close and establishing a starting point. We can always go back and fine tune it later if we need to.
After going through every expense category, we’re ready to total the variable cost % and the fixed costs to calculate break-even using this formula.
Break-Even Sales
=
Total Fixed Costs 1 - Variable Cost %
Break-Even Sales
=
$25,821
Break-Even Sales
=
$39,361
65.6%
If our assumptions are fairly accurate, we can assume that this particular restaurant needs to generate around $40,000 of sales in a 4-week period, or $10,000 a week, to have any real chance of making money.
Estimating Your Profit Picture Knowing your break-even is valuable, but look at what taking it a step further gives you. At this point it’s very easy to develop a model that suggests how much money you should be making when sales exceed the break-even point. Just put your P&L categories on a spreadsheet and use the values for each expense category that you used in calculating breakeven (See Exhibit 2). Notice that we’ve estimated an increase in the Hourly Personnel payroll costs as the sales volume increases. We estimated the labor cost increases by using the historical P&Ls as a guide. You can see that it would be easy to further tweak certain expense categories like “Direct Operating Expenses” and “Utilities” if there appeared to be a correlation between sales volume and expenses incurred in those categories. Try using this break-even approach with your restaurant. You should find it to be a useful tool for staying on top of your constantly changing profit picture and make people think you’re a real financial wizard in the process.
28
morestaurants.org | OCTOBER 2016
Exhibit 2
Break-Even & Profit Model BreakEven
%
Average Sales
%
$ 39,361
100.0
$ 45,000
100.0
Cost of Sales
13,540
34.4
15,480
Gross Profit
25,821
65.6
29,520
Management
4,200
10.7
Hourly Personnel
7,500
19.1
Sales
Highest Sales
%
$ 50,000
100.0
34.4
17,200
34.4
65.6
32,800
65.6
4,200
9.3
4,200
8.4
8,200
18.2
8,600
17.2
Payroll
Taxes & Benefits
2,574
6.5
2,728
6.1
2,816
5.7
14,274
36.3
15,128
33.6
15,616
31.2
1,200
3.0
1,200
2.7
1,200
2.4
280
0.7
280
0.6
280
0.6
1,100
2.8
1,100
2.4
1,100
2.2
1,400
3.6
1,400
3.1
1,400
2.8
Admin. & General
1,100
2.8
1,100
2.4
1,100
2.2
Repairs & Maintainence
500
1.3
500
1.1
500
1.0
Total Controllable Exp.
5,580
14.2
5,580
12.4
5,580
11.2
5,967
15.2
8,812
19.6
11,604
23.2
Total Payroll Controllable Expenses Direct Operating Exp. Music & Entertainment Marketing Utility Services
Controllable Profit Occupancy Costs Rent
2,350
6.0
2,350
5.2
2,350
4.7
Property Taxes
450
1.1
450
1.0
450
0.9
Other Taxes
400
1.0
400
0.9
400
0.8
Property Insurance
1,125
2.9
1,125
2.5
1,125
2.3
4,325
11.0
4,325
9.6
4,325
8.7
Interest
700
1.8
700
1.6
700
1.4
Depreciation
942
2.4
942
2.1
942
1.9
0
0.0
$
2,845
6.3
5,637
11.3
$
11,250
Total Occupancy Costs Other Expenses
Income Before Tax
$
$
Per Week Equivalents Sales
$ 9,840
Income Before Tax
0
0.0
711
$ 12,500 6.3
1,409
An investor went to the bank and sent half of his money to a stockbroker. Other than a $2 parking fee before entering the bank and a $1 mail fee after he left the bank, this was all the money he spent. On the second day, he returned to the bank and sent half of his remaining money to the stockbroker. Once again, the only other expenses were the $2 parking fee and the $1 mail fee. If the investor had $240 left, how much money did he have before the trip to the bank on the first day?
11.3 The first reader to provide the correct answer to either question via email to bbonney@morestaurants.org will win a $50 gift certificate for the MRA Member Restaurant of their choice.
ç
This article reprinted, with permission, from Restaurant Startup & Growth Magazine. Want to read more articles like this? Send an email to bbonney@morestaurants.org to receive a free 12-month trial subscription courtesy of RSG Magazine.
MRA Riddle ?
Congratulations
Congratulations to Alvin DeBose of The HoneyBaked Ham Co. and Café in Columbia who provided the first correct answer to one of the riddles from the summer edition of the magazine.
And congratulations to John Beverstein, also of The HoneyBaked Ham Co. and Café in Columbia who provided the only correct answer to the other riddle from the summer magazine.
Riddle: Four Clearwater High School students live on Main Street in Piedmont. Olivia lives at 57 Main. Vince lives at 106 Main. Claire lives at 151 Main. At what street address does Alex live?
Riddle: Name the members of the Major League Baseball Hall of Fame who spent their entire MLB playing careers with the St. Louis Cardinals or Kansas City Royals.
Answer: Alex lives at 60 Main Street. The house numbers are the sum of the Roman numerals corresponding to the letters in the students’ names.
Answer: George Brett of the Royals; and Stan Musial, Bob Gibson, and Walter Alston of the Cardinals. While Walter Alston is enshrined in the MLB Hall of Fame as manager of the Los Angeles Dodgers, he still spent his entire playing career with the Cardinals. The Missouri Restaurant Magazine
29
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